Procter & Gamble Asia, Pte, Ltd. vs. Commissioner of Internal Revenue

DECISION

Page 2 of 38

Petitioner

seeks the refund of the amount of P98,422,081.42, representing its alleged unutilized input value-added tax (VAT) attributable to zero-rated sales for the fiscal year covering July 1, 2009 to June 30, 2010. Petitioner Procter & Gamble Asia, Pte. Ltd. is a foreign corporation duly organized and existing under the laws of

Singapore

and is maintaining

Regional

Operating

Headquarters in the Philippines at the 18th Floor, Petron Megaplaza, 358 Sen. Gil Puyat Avenue, Makati City, in accordance with the Certificate of Registration and License S.E.C. Reg. No. A199913443 issued by the Securities and Exchange Commission (SEC) on January 23, 2001. It is authorized by the SEC to provide management, marketing, technical and financial advisory, and other qualified services c

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules;

XXX

XXX

Rule 8. Sec. 4. Where to appeal; mode of appeal.- (a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal.

XXX

XXX

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR to its related companies or affiliates. 3 Petitioner is also registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer, with Taxpayer's Identification Number (TIN) 203-684-973-000 as evidenced by its

Certificate

of Registration No. OCN 9RC0000071787. 4 Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue, with the authority to act as such, including the power to decide, approve and grant claims for issuance of tax credit certificate or refund of overpaid internal revenue taxes as provided by law.

She

holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.

Petitioner renders services to its affiliates in the Philippines and abroad pursuant to Service Agreements5 with said affiliates.

Under these Service Agreements, petitioner provides the Service Recipients (petitioner's affiliates) accounting and financial reporting services, employee services, purchases, business intelligence services, information technology business solution, workplace services, and other services. 6 Petitioner submitted to the BIR its original and amended Quarterly VAT Returns for fiscal year July 1, 2009 to June 30, 2010 on the following dates:

PERIOD COVERED (2008}

DATE FILED

EXHIBIT

First Quarter

July 1, 2009 to Original return October 22, 2009

"G"

September 30, 2009

First

April 26, 2010

"H"

amendment

Second

October 1, 2009 Original return January 22, 2010

"I"

Quarter

to December 31, 2009

First

April 26, 2010

"J"

3 Par. 1, Admitted Facts by Petitioner and Respondent, Joint Stipulation of Facts and Issues (JSFI), Docket, p. 246; Exhibit "A". 4 Par. 3, Admitted Facts by Petitioner and Respondent, JSFI, Docket, p. 247; Exhibit "B".

5 Exhibits "C-1" to "C-51".

6 Exhibit "K4".

(.

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR amendment

Second

amendment

Third Quarter

January 1, 2010 Original return

to March 31 2010

First

amendment

Fourth

April 1, 2010 to Original return

Quarter

June 30 2010

First

amendment

Second

amendment

Third

amendment April 26, 2011

"M"

April 26, 2010

"K"

April 26, 2011

"L"

July 26, 2010

"N"

August 20, 2010 "0" September 20,

"P"

2010 April 26, 2011

"Q"

On April 29, 2011, petitioner filed an administrative claim dated April 25, 2011 with the BIR Large Taxpayers Service for the refund or issuance of tax credit certificate in the aggregate amount of P98,422,081.42, representing unutilized input VAT attributable to its zero-rated sales for fiscal year ending June 30, 2010. 7 However, due to the inaction of respondent

Commissioner

on petitioner's administrative claim, petitioner filed the instant Petition for Review on September 26, 2011. After the Motion for Extension of Time to File Answer was granted by the Court, 8 respondent filed her Answer9 on October 28, 2011, interposing the following special and affirmative defenses:

"4.

Respondent hereby reiterates and repleads the preceding paragraphs of this answer as part of her Special and Affirmative Defenses.

5. Taxes collected are presumed to be in accordance with laws and regulations.

6. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination C

7 Exhibits "II" "JJ" "KK" "LL" and "MM"

I

f

I

I

•

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR by the Bureau of Internal Revenue. A claim for refund is not ipso facto granted because respondent CIR still has to investigate and ascertain the validity of the claim.

7. Petitioner is not entitled to the claim being sought for failure to file a timely and appropriate written claim for refund.

8.

Petitioner must prove that it is a VAT registered taxpayer and that it paid the alleged VAT input taxes for the period in question. 9.

Petitioner must prove that the same alleged input VAT was not utilized against any output VAT liability.

10. Petitioner must prove that its sales are VAT zero-rated as contemplated under Section 112 (A) of the Tax Code of 1997.

11. Petitioner must prove that the alleged VAT input taxes for the period in question are attributable to its alleged VAT zero-rated sales.

12. Petitioner must prove that its administrative application and petition for review were filed within the period prescribed by law.

13. Petitioner must prove that it submitted complete documents in support of the application filed with the BIR as required by section 112 of the Tax Code of 1997 in relation to RMO No. 53-98.

14. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government.

As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which its right arises; it cannot be allowed to exist(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund. To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction.

In an action for refund, the burden of proof is on the taxpayer who claims the exemption and he must justify his claim by the clearest grant under the

Constitutional

or statutory law and cannot be permitted by vague implications

(BPI

Leasing

Corporation vs. Honorable Court of Appeals, G.R 127624, November 18, 2003).

The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund.

(Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc. G.R. 163835 July 7, 2010)

15. Taxes are essential to government's very existence; (CIR v. Solidbank Corporation, G.R. No. 148191, November 25, 2003) hence, the dictum that 'taxes are the lifeblood of the government.' For this reason, the right of taxation cannot easily be surrendered; statutes granting tax exemptions are considered as a derogation of the sovereign authority. (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008) Since tax refunds are regarded as tax exemptions and these are to be construed strictissimi juris against the person or entity claiming the exemption. (Philippine Phospate

Fertilizer

Corporation

vs.

Commissioner

of Internal Revenue G.R 141973, June 28, 2005)

16. Following the premise above-mentioned, petitioner has the burden of proving that the right to such tax refund indubitably exists and well-founded doubt is fatal to the claim."{ PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR A pre-trial conference was scheduled on December 8, 2011. 10 Subsequently, respondent's Pre-Trial Brief11 was filed on November 29, 2011; while the Pre-Trial Brief (For Petitioner) 12 was filed on December 2, 2011. The parties submitted their Joint Stipulation of Facts and Issues13 on January 9, 2012, which the Court approved via Resolution 14 dated January 12, 2012. In the same Resolution, the Court terminated the pre-trial and the parties were ordered to proceed with the trial. During trial, petitioner presented Maria Nora Manalo, Teresita 0. Sugay, Jesse Teo, and Czarina R. Miranda as its witnesses.

Petitioner

likewise formally offered its documentary exhibits on November 16, 2012. The documentary evidence formally offered and admitted are as follows:

Exhibits

A

B

C-1

C-2

C-3

C-4

C-5

10 Docket, p. 218.

11 Docket, pp. 219-222.

12 Docket, pp. 224-238.

13 Docket, pp. 246-248.

14 Docket, p. 250.

Description

Certificate of Registration and License issued to petitioner by the Securities and Exchange Commission (SEC) on January 23, 2001. Certificate of Registration issued by the Bureau of Internal Revenue to petitoner on October 8, 1999.

Service agreement with Detergent Products

AG

Service agreement with Gillette Diversified

Operations Private Limited

Service agreement with Gillette India Ltd Service agreement with Procter & Gamble

Distributing New Zealand

Service agreement with P&G K. K. 4

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

C-6

C-7

C-8

C-9

C-10

C-11

C-12

C-13

C-14

C-15

C-16

C-17

C-18

C-19

C-20

C-21

C-22

C-23

Service

agreement with

Max

Factor

Kabushiki Kaisha

Service agreement with Procter & Gamble

Technical Centres Limited

Service agreement with Procter & Gamble

Vietnam Ltd

Service agreement with Procter & Gamble Korea Inc.

Service agreement with Procter & Gamble

Malaysia SDN BHD

Service agreement with Procter & Gamble

Singapore Pte Ltd

Service agreement with Procter & Gamble

Australia Pty Ltd

Service agreement with Procter & Gamble

Distributing (HK) Limited

Service agreement with Procter & Gamble Export Operations SARL, Taiwan branch Service agreement with Procter & Gamble

Gulf FZE

Service agreement with Procter & Gamble

Hong Kong Ltd

Service agreement with Procter & Gamble

International Operations Pte Ltd

Service agreement with Procter & Gamble

International Operations SA

Service agreement with Procter & Gamble Japan K.K.

Service agreement with Procter & Gamble Korea S&D Co.

Service agreement with Procter

& Gamble

Pet Care (Australia) Pty Ltd

Service agreement with Procter & Gamble

South Africa PTY LTD

Service agreement with Procter

& Gamble

South African Trading Pty Ltd ~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

C-24

C-25

C-26

C-27

C-28

C-29

C-30

C-31

C-32

C-33

C-34

C-35

C-36

C-37

C-38

C-39

C-40

C-41

Service agreement with Procter

& Gamble

Taiwan Limited

Service agreement with Procter

& Gamble

Manufacturing Pty Ltd

Service agreement with P.T.

Procter

&

Gamble Home Products Indonesia

Service agreement with The Procter &

Gamble Company

Service agreement with Procter

& Gamble

Distributing (Philippines), Inc. Service agreement with Procter

& Gamble

Philippines, Inc.

Service agreement with Procter

& Gamble

Korea IE. Co.

Service agreement with Procter

& Gamble

Manufacturing (Thailand) Limited

Service agreement with Procter

& Gamble

Trading (Thailand) Ltd.

Service agreement with Procter

& Gamble

Hygiene and Health Care Limited

Service agreement with Procter

& Gamble

Home Products Limited

Service agreement with Procter

& Gamble

Indochina

Service agreement with Procter

& Gamble

Pakistan (Private) Limited

Service agreement with Cosmetic Suppliers

Pty Ltd

Service agreement with Hyginett Magyar-

Amerikai Higieniai Cikkeket Gyarto Kft

Service agreement with P&G Design Centre

Godo Kaisha

Service agreement with

P&G

Innovation

Godo Kaisha

Service

agreement with

PPS

Hairwear

Australia Pty Ltd'

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

C-42

C-43

C-44

C-45

C-46

C-47

C-48

C-49

C-50

C-51

D

E

F

G

H

I

Service agreement with Procter & Gamble Rakona s.r.o.

Service agreement with Procter & Gamble Czech Republic s.r.o.

Service agreement with Procter & Gamble d.o.o. za trgovinu.

Service agreement with Procter & Gamble

Magyarorszag Nagykereskedelmi Kkt

Service agreement with Procter & Gamble

RSC Regionalis Szolgaltato Kft

Service agreement with Procter & Gamble spol s.r.o.

Service agreement with Gillette Pakistan

Limited

Service agreement with P&G Israel M.D.O.

Ltd

Service agreement with Procter & Gamble Marketing in trgovske dejavnosti d.o.o

Ljubljana

Service agreement with Wella India Ltd

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending June 30, 2009

First Amended Quarterly VAT Return (BIR

Form 2550Q) for the quarter ending June 30, 2009

Second Amended Quarterly VAT Return (BIR

Form 2550Q) for the quarter ending June 30, 2009

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending September 30, 2009

Amended Quarterly VAT Return (BIR Form

2550Q) for the quarter ending September 30, 2009

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending December 31, 2009('

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

J

K

L

M

N

0 p

Q

R

s

T

u v w

X

y

First Amended Quarterly VAT Return (BIR

Form

2550Q)

for the quarter ending December 31, 2009.

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending March 31, 2010

Amended Quarterly VAT Return (BIR Form

2550Q) for the quarter ending March 31, 2010

Second Amended Quarterly VAT Return (BIR

Form

2550Q)

for the quarter ending December 31, 2009

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending June 30, 2010

First

Quarterly

VAT

Return

(BIR

Form

2550Q) for the quarter ending June 30, 2010

Second Quarterly VAT Return (BIR Form

2550Q) for the quarter ending June 30, 2010

Third

Quarterly VAT

Return

(BIR Form

2550Q) for the quarter ending June 30, 2010

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending September 30, 2010

Amended Quarterly VAT Return (BIR Form

2550Q) for the quarter ending September 30, 2010

Quarterly VAT Return (BIR Form 2550Q) for

the quarter ending December 31, 2010

Amended Quarterly VAT Return (BIR Form

2550Q) for the quarter ending December 31, 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of July 2009

Monthly VAT Declaration (BIR Form 2550-M)

for the month of August 2009

Monthly VAT Declaration (BIR Form 2550-M)

for the month of October 2009

Monthly VAT Declaration (BIR Form 2550-M)

for the month of November 2009(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR z

AA

BB

cc

DD

EE

FF

GG

HH

II

JJ

KK

LL

MM

00 00-1 pp

Monthly VAT Declaration (BIR Form 2550-M)

for the month of January 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of February 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of April 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of May 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of July 2010

Amended

Monthly VAT

Declaration

(BIR

Form 2550-M) for the month of July 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of August 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of October 2010

Monthly VAT Declaration (BIR Form 2550-M)

for the month of November 2010

Application for Tax Credits/Refunds (BIR

Form 1914) for the period July 1, 2009 to September 30, 2009

Application for Tax Credits/Refunds (BIR

Form 1914) for the period October 1, 2009 to December 31, 2009

Application for Tax Credits/Refunds (BIR

Form 1914) for the period January 1, 2010 to March 31, 2010

Application for Tax Credits/Refunds (BIR

Form 1914) for the period April 1, 2010 to June 30, 2010 Letter dated April 25, 2011 addressed to the BIR in support of petitioner's claim for refund

Judicial Affidavit of Maria Nora Manalo with

documentary stamp tax affixed

Signature of Maria Nora Manalo

Citibank Certification of inward remittances dated April 25, 2011(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

QQ

RR

RR-1

ss

TT

uu vv ww

XX

yy Citibank Certification of inward remittances dated April 27, 2010 for the period January 1, 2010 to June 30, 2010 Judicial Affidavit of Teresita 0. Sugay with documentary stamp affixed thereto Signature of Teresita 0 . Sugay

Certificate

of

Authentication

issued by Domingo P. Nolasco, Consul General of the

Republic of the Philippines in the United

States and affidavit of Susan S. Felder,

Assistant Secretary of The Procter & Gamble

Company

Certificate of Incorporation with Affidavit of

Nimalan Rutnam, Company Secretary of Procter & Gamble Australia Pty. Ltd., bearing

the Seal of Philippine Consulate General in

Sydney

Certification of Incorporation on Change of

Name of Procter & Gamble Hong Kong

Limited with Certification issued by Victorio

Mario

M.

Dimagiba, Jr.,

Consul of the

Republic of the Philippines in and for Hong

Kong SAR

Affidavit executed by XIONG Qing Yun,

Director of Procter & Gamble Hong Kong

Limited, with Certification issued by Victorio Mario M. Dimagiba, Jr.

Affidavit

of

Mari

Nogami,

Officer

for

Representative Member of P&G Max Factor

Godo Kaisha with Authentication issued by Ana Marie L. Hernando, Vice Consul of the

Republic of the Philippines in and for Osaka

Japan

Certificate of All Current Registered Matters

for

Max

Factor

Godo

Kaisha

with authentication likewise issued by Vice Consul Ana Marie L. Hernando

Certificate

of

Incorporation

with

Authentication

issued by

Shirlene

C.

Mananquil, Vice Consul of Republic of the Philippines in Kuala Lumpur, Malaysia and affidavit of Zulhaimi bin

Abdul

Hamid,

External

Relations

Leader of Procter &

Gamble (Malaysia) Sdn. Bhd, and annexes thereto{

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR zz

AAA

BBB

CCC

DDD

EEE

FFF

Certificate of Incorporation and Affidavit of

Nimalan Rutnam, Company Secretary fo

Procter & Gamble Distributing New Zealand

bearig the

Seal of Philippine

Consulate

General in Sydney

Certified

copy of its

Certificate

of

Incorporation

with

Certificate

of

Authentication

issued by

Nathaniel

G.

Imperial, Consul of the Republic of the Philippines in Singapore and affidavit of Ashok Kumar Chhabra, Director of Procter & Gamble (Singapore) Pte. Ltd.

Certificates of Tax Withheld at Source with

Certificate

of

Authentication

issued by

Resurrecion

M.

Fernando of the

Manila

Economic and Cultural Office in Taiwan and

affidavit of Max Rangel, General Manager of Procter & Gamble Taiwan, Ltd, and annexes thereto Affidavit of Mrs. Sunee Kirdniyom, Legal

Counselor

of

Procter

&

Gamble

Manufacturing

(Thailand)

Ltd.

with Authentication issued by Edgar B. Badajos,

Consul General at the Philippine Embassy in

Thailand

Certification

issued by

Miss

Kannika

Achariyasakulchai of the Bangkok Metropolis

Partnership and Company Registration Office

(with translations) certifying that Procter & Gamble Manufacturing (Thailand) Ltd has been registered under the

Civil

and Commercial Code with Authentication issued by Consul General Edgar B. Badajos Affidavit of Mrs. Sunee Kirdniyom, Legal

Counselor of Procter & Gamble Trading

(Thailand) Ltd. with Authentication issued by Edgar B. Badajos, Consul at the Philippine

Embassy in Thailand

Affidavit

issued by

Miss

Kannikar

Achariyasakulchai of the Bangkok Metropolis

Partnership and Company Registration Office

(with translations) certifying that Procter & Gamble Trading (Thailand) Ltd has been registered under the Civil and Commercial Code with Authentication issued by Consul Edgar B. Badajosl

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

GGG

GGG-1

HHH

III

JJJ

KKK

LLL

MMM

Certificate of Incorporation with Certificate of

Authentication

issued by

Abraham

R.

Estavillo, Consul General in Seoul, Korea with attached Affidavit of Okuyama Shinji,

Director

of

Procter

&

Gamble

Korea

Incorporation and annexes thereto

Duly

authenticated

Certificate

of

Incorporation of Procter & Gamble Korea

Incorporation

Certificate

of

Incoporation

with

Authentication

issued by

Germinia

V.

Aguilar-Usudan, First Secretary and Consul of the Republic of the Philippines in and for the Consular District of Jakarta, Indonesia and affidavit of Mohamed Ahmed Ismail, President Director of P.T. Procter & Gamble

Home Products Indonesia

Affidavit of LE THI THANHD HA, Country

Finance

Manager of Procter

&

Gamble

Vietnam Ltd, with Authentication issued by Gerry T. Paglinawan, Consul General, a.h. of

the Consulate General of the Republic of the

Philippines Ho Chi Minh City, Vietnam

Affidavit

executed by

AI

Abdul

Malek

Rajwani,

General

Manager of Procter &

Gamble Gulf FZE, with authentication of Vicente Vivencio T. Bandillo of the Consulate General of the Republic of the Philippines,

Dubai- UAE

Affidavit of Klaus Lindner, member of the

Board of Directors of Procter & Gamble

International Operations SA, with Certificate of Authentication issued by Margarita S. Ibayan.

Certified extract of the Commercial Register, Geneva, of Procter & Gamble International

Operations

SA

with

Certificate

of

Authentication

issued by

Margarita

S.

Ibayan, First Secretary and Consul of the

Republic of the Philippines in Switzerland

Affidavit

executed by

John

M.

Mang, Representative in Japan, of P&g Northeast Asia Pte. Ltd, and annex thereto. With authentication issued by

Ana

Marie

L.

Hernan~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

NNN

000 000-1 ppp

PPP-1

QQQ

RRR

sss

TTT

uuu

Certificate of All Current Registered Matters of P&G

Northeast Asia

PTE.

LTD

with authentication issued by

Ana

Marie

L.

Hernando

Certificate of Incorporation with Certificate of

Authentication

issued by

Abraham

R.

Estavillo, Consul General in Seoul, Korea, and affidavit of Okuyama Shinji, Director of Procter & Gamble Korea S&D Company.

Duly

authenticated

Certificate

of

Incorporation of Procter & Gamble Korea

S&D Company

Certificate

of

Incorporation

with

Authentication

issued by

Abraham

R.

Estavillo, Consul General in Seoul, Korea, and affidavit of Okuyama Shinji, Director of

Procter & Gamble Korea IE Company and

annexes thereto

Duly

authenticated

Certificate

of

Incorporation of Procter & Gamble Korea IE

Company

Certified

Copy

of its

Certificate

of

Incorporation

with

Certificate

of

Authentication

issued by

Nathaniel

G.

Imperial, Consul of the Republic of the Philippines in Singapore, and affidavit of Ashok Kumar Chhabra, Director of Procter & Gamble International Operations Pte. Ltd

Authentication

issued by

Ana

Marie

L.

Hernando, Vice consul of the Republic of the

Philippines

in Japan, and affidavit of Hatsunori Kiriyama, Representative Director of P&G K.K.

Company

Register

of

P&G

K.K.

with

Authentication

issued by

Ana

Marie

L.

Hernando, Vice Consul of the Republic of the

Philippines in Japan

Affidavit of Ori BenShai, Associate Marketing Director of Procter & Gamble Israel M.D.O. Ltd with Authentication issued by Thaddeus T. Hamoy, Vice Consul of the Republic of the Philippines in Tel Aviv, Israel Certification of Translation (Form No. 7650) bearing the signature and seal of Michal Ophir, Advocate and Notary at 67 A'Bialik St.(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

BBB

vvv www

XXX

yyy zzz Ramat Gan Israel and attached Company details data

Certificates of Tax Withheld at Source with

Certificate

of

Authentication

issued by

Resurrecion

M.

Fernando of the

Manila

Economic and Cultural Office in Taiwan and

affidavit of Max Rangel, Branch Manager of

Procter & Gamble Export Operations SARL

and annexes thereto Affidavit executed

by XIONG

Qing Yun,

Director of Procter & Gamble Distributing

(HK) Limited, attached to the certification issued by Victorio Mario Dimagiba

Certificate of Change of Name of Procter &

Gamble Distributing (HK) Limited attached to the certification issued by Victorio Mario

Dimagiba

Certified copy of license and affidavit of Hatsunori Kiriyama, Representative Director

of Procter

&

Gamble

Japan

K.K.

with

Authentication

issued by

Ana

Marie

L.

Hernando Vice Consul fo the Republic of the

Philippines in Osaka Japan

Company Register of Procter & Gamble

Japan K.K. with Authentication issued by Ana

Marie

L.

Hernando Vice

Consul of the

Republic of the Philippines in Osaka Japan

Certificate of Registration on Change of

Name

of

Procter

&

Gamble

Pet

Care

(Australia) Pty. Ltd with the Seal of the Philippine Consulate General and signed by Vice Consul J. Anthony A. Reyes, and the affidavit of

Nimalan

Rutnam,

Company

Secretary of Procter & Gamble Pet Care

(Australia) Pty. Ltd

Memorandum and Articles of Association of

Procter & Gamble Hygiene and Health Care

Limited with Certificate of Authentication

issued by Rajashree Birla, Consul General of

the Republic of the Philippines in India and

the affidavit of

Amit

Vyas,

Company

Secretary of Procter & Gamble Hygiene and

Health Care Limited.

Joint

Affidavit

of

Laurent

Philippe

and Thomas Gorham, legal representatives of

Detergent Products AG with Certificate of~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

Authentication

issued by

Margarita

S.

Ibayan, First Secretary and Consul of the

Republic of the Philippines in Switzerland

Certified copy of the License of Detergent

Products

AG

with

Certificate

of

Authentication

issued by

Margarita

S.

Ibayan, First Secretary and Consul of the

Republic of the Philippines in Switzerland

Certified copy of the Memorandum and

Articles of Association of the Procter &

Gamble

Home

Products

Limited

with

Certificate

of

Authentication

issued by

Rajashree

Birla

Consul

General

of the

Republic of the Philippines in India and

affidavit of

Sachin

Harlalka,

Company

Secretary

of

Procter

&

Gamble

Home

Products Limited

Affidavit of Andrew

Charles

MacCarthy,

Director of Procter &

Gamble Technical

Centres Limited, with annexed Certificate of Good Standing for the Company, sworn at Weybridge before Solicitor Gwyne M P Jarvis

Memorandum and Articles of Association of

Gillette

Diversified

Operations

Private

Limited with Certificate of Authentication

issued by Rajashree Birla, Consul General of

the Republic of the Philippines in India and

the affidavit of Prashant Batnagar, Director

of Gillette

Diversified

Operations

Private

Limited

Memorandum and Articles of Association of

Gillette India Limited with Certificate of

Authentication issued by Rajashree Birla,

Consul

General of the

Republic of the

Philippines in India and the affidavit of Deepak Acharya,

Company

Secretary of

Gillette India Limited

Certificates of Tax Withheld at source issued

to Petitioner by Gillette India Limited and

Gillette

Diversified

Operations

Private

Limited and affidavit of Prashant Bhatnagar,

Country

Tax

Manager of Gillette

India

Limited

with authentication issued by

Rajashree

Birla,

Consul

General

of the

Republic of the Philippines in India (

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

K4

K4-1

LLLL; LLLL 1

to LLLL 24

LLLL 25

MMMM,

MMMM 1-1 to

MMMM 1-3

NNNN;

NNNN 1-1 to

NNNN 1-3

0000;

0000 1-1 to 0000 13- PPPP;

PPPP 1-1- to

pppp 1-3 QQQQ;

QQQQ 1-1 to

QQQQ 1-26

RRRR;

RRRR 1-1- to

RRRR 1-314;

RRRR 2-315

to RRRR

2-628;

RRRR 3-269

to RRRR

3-942;

RRRR 4-943

to RRRR

4-1256;

RRRR 5-1257

to RRRR

5-1570;

RRRR 6-1571

to RRRR'

Exhibit

21 of the

Procter and

Gamble

Company and Subsidiaries Report to the

U.S. Securities and Exchange Commission. Judicial Affidavit of Mr. Jesse Teo with documentary stamp affixed thereto Signature of Mr. Jesse Teo

Independent CPA Report

Signature of Ms. Czarina R. Miranda in her

Final Independent CPA Report

Quarterly Summary List of Sales for the Period

ended September 30, 2009

Quarterly Summary List of Sales for the Period

ended December 31, 2009

Quarterly Summary List of Sales for the Period

ended March 31, 2010 Quarterly Summay List of Sales for Period ended June 30, 2010 Schedule of zero-rated sales of services

BIR-registered Debit/Credit Memos for Zero-rated

Sales of Services

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

6-1887 SSSS;

SSSS 1-1 to

ssss 1-300;

ssss 2-301

to SSSS

2-443

TTTT·

I

TTTT 1-1 to

TTTT 1-86

UUUU;

UUUU 1-1 to

uuuu 1-12 VVVV;

VVVV 1-1 to

vvvv 1-219 wwww, wwww 1-1

to WWWW

1-44 xxxx,

XXXX 1-1 to

xxxx 1-4 YYYY,

YYYY 1-1 to

yyyy 1-3 zzzz,

ZZZZ 1-1 to

zzzz 1-4 AAAAA,

AAAAA 1-1 to

AAAAA 1-4

BBBBB,

BBBBB 1-1 to

BBBBB 1-13

ccccc,

CCCCC 1-1 to

ccccc 1-76 DDDDD,

DDDDD 1-1~

VAT Official Receipts issued for Zero-rated Sales

of Services

Bank Statements Issued by Citibank N.A.

Philippine Branches

Schedule of Local Sales of Services

SIR-registered Debit/Credit Memos for Local

Sales of Services

VAT Official Receipts issued for Local Sales of

Services

Quarterly Summary Lists of Purchases for the

period ended September 30, 2009

Quarterly Summary Lists of Purchases for the

period ended December 31, 2009

Quarterly Summary Lists of Purchases for the

period ended March 31, 2010

Quarterly Summary Lists of Purchases for the

period ended June 30, 2010

Schedule of Domestic Purchases of Goods

Schedule of Domestic Purchases of Services

Schedule of Capital Goods Purchased

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR to

DDDDD 1-12

EEEEE,

EEEEE 1-1 to

EEEEE 1-300;

EEEEE 2-301

to EEEEE 2-

526; EEEEE

3-1 to EEEEE

3-107; EEEEE

4-1 to EEEEE

4-300; EEEEE 5-301 to EEEEE 5-558;

EEEEE 6-1 to

EEEEE 6-34;

EEEEE 7-1 to

EEEEE 7-6;

EEEEE 8-1 to

EEEEE 8-14;

EEEEE 9-1 to

EEEEE 9-5

FFFFF I FFFFF

1-1 to FFFFF

1-5; FFFFF

2-1 to FFFFF

2-2; FFFFF

3-1 to FFFFF

3-212; FFFFF 4-1; FFFFF

5-1 to FFFFF

5-3; FFFFF 6-1; FFFFF

7-1 to FFFFF

7-9; FFFFF

8-1 to FFFFF

8-11; FFFFF 9-1; FFFFF 10-1; FFFFF

11-1 to FFFFF

11-6; FFFFF 12-1; FFFFF

13-1 to FFFFF

13-5; FFFFF

14-1 to FFFFF

14-2; FFFFF 15-1; FFFFF

16-1 to FFFFF

16-5; FFFFF 17-1; FFFFF' Various VAT Invoices, VAT Official Receipts, and

Other Documents

Various VAT Invoices, VAT Official Receipts and

Other Documents

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

18-1 to FFFFF

18-3; FFFFF

19-1 to FFFFF

19-33; FFFFF

20-1 to FFFFF

20-8; FFFFF 21; FFFFF 22-

1 to FFFFF

22-11; FFFFF

23-1 to FFFFF

23-23; FFFFF

24-1 to FFFFF

24-4 GGGGG;

GGGGG 1-1

to GGGGG

1-49 HHHHH,

HHHHH 1-1 to

HHHHH 1-11

IIIII, IIIII 1-1

to IIIII 1-2

JJJJJ; JJJJJ 1-

1 to JJJJJ 1-2

KKKKK,

KKKKK 1-1 to

KKKKK 1-4

LLLLL

LLLLL-1

Certificates of Non-registration of Corporation or

Partnership issued by the Securities and Exchange

Commission

Certificate of Inward Remittances issued by Citibank dated April 27, 2010 and April 25, 2011 Amended Quarterly VAT Return for the quarter ended June 30, 2009 Amended Quarterly VAT Return for the quarter ended September 30, 2010

BIR Authority to Print Invoices or Receipts

Judicial Affidavit of Ms. Czarina R. Miranda with documentary stamp affixed thereto Signature of Ms. Czarina R. Miranda On the other hand, respondent's counsel manifested during the hearing on January 30, 2013 that there was no report on petitioner's administrative claim for refund and she had no witness to present.

On May 6, 2013, 15 this case was submitted for decision upon the filing of the parties' Memoranda on April 1, 2013.~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

The parties submitted the following issues16 for the Court's resolution:

"1.)

Whether

Petitioner

has complied with governing rules and regulations with regard to recovery of taxes collected/received as provided in the NIRC of 1997, as amended.

2.) Whether Petitioner has complied with the submission of complete documents in support of its administrative claim for refund. 3.) Whether petitioner's claim for refund for the taxable period July 1, 2009 to June 30, 2010 was filed within the period prescribed by law. 4.) Whether Petitioner's alleged sales of services to affiliates abroad doing business outside the Philippines and not doing business in the Philippines which are allegedly paid for in acceptable foreign currency and accounted for in accordance with the rules of the Bangko Sentral ng Pilipinas (BSP) are zero-rated for VAT purposes. 5.) Whether the Petitioner is entitled to a refund or tax credit in the total amount of Ninety Eight Million, Four Hundred Twenty (Two) Thousand, Eighty One and 42/100 (Php98,422,081.41) representing alleged unutilized input VAT paid on goods and services allegedly attributable to its zero-rated sales for the period of October 1 to December 31, 2009, January 1 to March 31, 2010, and April 1 to June 30, 2010."

The foregoing issues can be summarized as follows: "Whether or not petitioner is entitled to a refund of the aggregate amount of P98,422,081.42, representing its alleged unutilized input VAT attributable to zero-rated sales for the fiscal year covering July 1, 2009 to June 30, 2010. "(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

Petitioner anchors its claim on Sections 110(8) and 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended, which state: "SEC. 110. Tax Credits. -

XXX

XXX

XXX

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70°/o) of the output VAT: Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112." "SEC. 112.Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero- rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the(

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non- zero-rated sales."

Based

on the above-quoted prov1s1on

of Section

112(A), petitioner must comply with the following requisites to be entitled to a refund or tax credit of unutilized input taxes attributable to zero-rated or effectively zero-rated sales:

1. that there must be zero-rated or effectively zero- rated sales;

2. that input taxes were incurred or paid;

3. that such input taxes are attributable to zero-rated sales or effectively zero-rated sales;

4. that the input taxes were not applied against any output VAT liability; and

5. that the claim for refund was filed within the two- year prescriptive period.

The Court will resolve first petitioner's compliance with the fifth requirement pertaining to prescription. As explicitly stated under

Section

112(A), the application for tax credit certificate/refund of unutilized excess input VAT must be filed within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The present claim covers the four ( 4) quarters of fiscal year ending June 30, 2010, which closed on September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010.

Counting two years from the said dates, petitioner had until September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012, respectively, within which to file its administrative claim for refund. Clearly, theC

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR administrative claim for refund filed on April 29, 2011 17 is well within the two-year prescriptive period provided under Section 112(A) of the NIRC of 1997. As to the timeliness of petitioner's judicial appeal, Section 112(C) of the NIRC of 1997, as amended, provides that the BIR Commissioner has 120 days from the date of submission of complete documents in support of the application for refund or tax credit within which to grant or deny the claim.

In case of full or partial denial by the BIR Commissioner, the taxpayer's recourse is to file an appeal before this Court within 30 days from receipt of the decision of the BIR Commissioner.

However, if after the 120-day period the BIR Commissioner fails to act on the application for refund or tax credit, the remedy of the taxpayer is to appeal the inaction of the BIR Commissioner to this Court within 30 days.

For easy reference, Section 112(C) of the NIRC of 1997, as amended, is quoted hereunder: "SEC. 112. Refunds or Tax Credits of Input Tax.-

XXX

XXX

XXX

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals."~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

Petitioner, upon the filing of its administrative claim on April 29, 2011, simultaneously submitted the documents in support thereof. 18 Since the records do not show that a written notice was sent by the BIR informing petitioner that the aforesaid documents are incomplete or requiring petitioner to submit additional documents, the 120-day period started and continued to run from April 29, 2011, the date when petitioner filed its administrative claim together with the supporting documents. This is in accordance with Revenue Memorandum Circular No. 029-09 which states that:

"III. Period within which Refund or Tax Credit of Input Taxes shall be Made Section 112 (C) of the Tax Code of 1997, as amended by Republic Act No. 9337, provides, among others, that in proper cases, the Commissioner shall grant a refund or issue the tax credit certificate (TCC) for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents. For the purpose of defining 'proper cases' in the said provision, the taxpayer/claimant must have complied with the following conditions/requirements upon audit/verification of his/its claim:

a. Submission of complete documents necessary to determine and/or ascertain the correctness of the return and the amount to be refunded/credited;

b. That all books of accounts and accounting records pertaining to the claim are immediately available to the concerned Revenue Office (RO) for audit/verification;

c. Any discrepancies/findings upon audit/ verification shall be reconciled/explained in writing by the taxpayer/claimant within five (5) days from receipt of the notification from the RO; and

d. The taxpayer/claimant has signified his concurrence to the outcome of the.!

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR audit/verification, which shall be evidenced by an Agreement Form .

In cases where taxpayer failed to comply with the above conditions/requirements, i.e., failure to present accounting books and records for audit/verification, additional documents to explain discrepancies/findings are not submitted, taxpayer refuses or incurs delay in the submission of the Agreement Form, the running of the 120-day period shall stop from the date of notification to the taxpayer. Likewise, the running of the 120-day period shall be suspended in case a question of law arises during the conduct of audit/verification and/or review of the claim for tax refund/credit, and the issue is referred to the Legal Division or the Legal Service, as the case may be, for resolution and issuance of legal opinion, which should be rendered within thirty (30) working days from receipt of the request." (Emphasis supplied) In the case of Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., 19 the Supreme Court explained the foregoing requirement in this wise: "The term 'relevant supporting documents' should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted.

Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit." (Emphasis supplied) Hence, pursuant to Section 112(C) of the NIRC of 1997, as amended, petitioner timely filed its appeal by way of a Petition for Review on September 26, 2011,2° as the ~

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR same was filed on the last day of the 30-day period after the 120-day period ended on August 27, 2011. The Court will now proceed to discuss the remaining requisites.

Petitioner alleges that its sale of services to its affiliates abroad is subject to zero percent (0°/o) VAT pursuant to Section 108(B)(2) of the NIRC of 1997, as amended, which states:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

XXX

XXX

XXX

(B) Transactions Subject to Zero Percent (Oo/o) Rate.

- The following services performed in the Philippines by VAT -registered persons shall be subject to zero percent (0°/o) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the

Philippines

when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);" In the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, c PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR Inc. 21 , the Supreme Court held that in order for the supply of services to be VAT zero-rated under Section 108(B)(2) of the NIRC of 1997, as amended, the following requisites must be met:

1. the services must be other than processing, manufacturing or repacking of goods;

2. payment for such services must be in acceptable foreign currency accounted for in accordance with the

BSP

rules and regulations; and

3. the recipient of such services is doing business outside the Philippines. Corollary to the second requisite, Sections 113(A)(2), (B)(1), (2)(c) and (3) of the NIRC of 1997, as amended, as implemented by Sections 4.113-1(A)(2), B(1) and (2)(c) of Revenue Regulations (RR) No. 16-05, provide that a VAT taxpayer, like herein petitioner, shall for every lease of goods or properties and for every sale, barter or exchange of services, issue a VAT official receipt which must contain the following information:

"SEC.

113.

Invoicing

and

Accounting

Requirements for VAT-Registered Persons. - (A) Invoicing Requirements. - A VAT-registered person shall issue:

XXX

XXX

XXX

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

(B) Information Contained in the VAT Invoice or

VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt:<

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

(1) A statement that the seller registered person, followed by his Identification Number (TIN);

Page 31 of 38

is a VAT-

Taxpayer's

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That:

XXX

XXX

XXX

(c) If the sale is subject to zero percent (0°/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;

XXX

XXX

XXX

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and xxx" (Emphasis supplied) "SECTION 4.113-1. Invoicing Requirements. -

(A)

A VAT-registered person shall issue:

XXX

XXX

XXX

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to t any input tax. C.

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records.

(B) Information contained in VAT invoice or VAT official receipt. -The following information shall be indicated in VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT- registered person, followed by his TIN;

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That:

XXX

XXX

XXX

(c) If the sale is subject to zero percent (0°/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;

(Emphasis supplied) Pursuant to the foregoing provisions, the foreign currency remittances referred to under Section 108(8)(2) of the NIRC of 1997, as amended, must likewise be supported by VAT zero-rated official receipts. The Court shall now resolve whether or not petitioner complied with the aforesaid requisites for VAT zero-rating of sales of services.

Petitioner is duly registered with the BIR as a VAT taxpayer22 and the services it performs in the Philippines, through its Regional

Operating

Headquarters, namely, management, marketing, technical and financial advisory services to related companies23 (affiliates) are not in the4

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR same category as "processing, manufacturing or repacking of goods".

For the four ( 4) quarters of fiscal year ending June 30, 2010, petitioner rendered services to its non-resident foreign affiliates which were not registered corporations in the Philippines and were not doing business in the Philippines as indicated in the SEC Certificates of Non-Registration of Corporation/Pa rtnership24, Service Ag reements25, affidavits26 executed by the respective officers of petitioner's affiliates abroad with attached proof of business registrations of the respective affiliates duly authenticated by consuls of the Republic of the Philippines and Exhibit 21 27 of The Procter & Gamble Company and Subsidiaries Report to the U.S.

Securities

and

Exchange

Commission, which can be accessed at the U.S. SEC website. To prove compliance with the second requisite, petitioner presented Certifications28 of inward remittances and bank statements29 issued by Citibank N.A., Philippine Branch and duly affirmed by the testimony30 of Citibank's representative, Ms.

Teresita

Sugay,

SIR-registered

Debit/Credit Memos31, VAT zero-rated official receipts32 and Report33 of the Court-commissioned Independent CPA. A careful scrutiny of these documents showed that out of the P2,549,972,648. 76 zero-rated sales declared by petitioner for fiscal year 2010, a sum of P6,008,536.08, detailed below, must be denied VAT zero-rating:~ 24 Exhibits " GGGGG 1-1" to " GGGGG 1-49". 25 Exhibits " C-1 " to " C-51 ". 26 Exhibits " 55" to "ZZ", "AAA" to "ZZZ", and "A4 " to " H4 " . 27 Exhibit "J4".

28 Exhibits " PP" to "QQ".

29 Exhibits "TTTT 1- 1" to "TTTT 1-86". 30 Exhibits "RR" to " RR-1". 31 Exhibits "RRRR 1-1" to " RRRR 1-314", " RRRR 2-31 5" to " RRRR 2-322", " RRRR 2- 333" to " RRRR 2-628", "RRRR 3-629" to " RRRR 3-942", "RRRR 4-943" to " RRR 4- 1256", " RRRR 5- 1257" to "RRRR 5-1278", " RRRR 5-1280" to " RRRR 5-1570", and

" RRRR 6-1571" to "RRRR 6-1887"

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

(a) Amounts of zero-rated sales not supported by VAT official receipts:

OR No.

per

Schedule

Date

Customer Name

In Dollar

In Pesos

-

29-Jul-09

Procter and Gamble International

($214 747.66) (P282,832.08) - -

P&G Technical Centers LTD

(143.23) (6,899.32)

Procter and Gamble

- -

Magyarorszag

39,976.93 1 864 595.62

26-May-

Procter and Gamble Export

3781 10

Operations

49 498.95 2 915,163.13

Total

($125,415.01) P4,490,027 .35 (b)

Difference

in amount of zero-rated sales per schedule (as declared in the Quarterly VAT Return) and per VAT official receipt:

Customer Name:

Procter and Gamble Export

Operations

In Dollar

In Pesos

Per Schedule

$25 038.62 P1 459 807.61 Per OR34 (No. 3733 dated 03/22/10) 18 369.82 1 071 001.64

Difference

$6,668.80 P388,805.97 (c) Amount of zero-rated sales is not indicated on the VAT official receipt:

Exhibit

OR No.

Date

Customer Name

In Dollar

In Pesos

Procter and Gamble

"SSSS 2-

International

371" 3758

18-May-10

Operations

$24 932.54 P1 129 702.76 Consequently, only the remammg reported zero-rated sales for the four ( 4) quarters of fiscal year ending June 30, 2010 in the amount of P2,543,964,112.68, as computed below, is subject to zero percent (0°/o) VAT under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended:

Declared Zero-Rated Sales

p 2 549 972 648.76

Less: Disallowances

a. No supporting zero-rated VAT official receipt 4 490 027.35

b. Difference in amount of zero-rated sales per schedule and per VAT official receipt 388 805.97 c

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR c. Amount of zero-rated sales is not indicated on the VAT official receipt 1 129 702.76

Total

p 6 008 536.08

Valid Zero-rated Sales

P2,543,964,112.68 Having resolved that petitioner had VAT zero-rated sales for the four (4) quarters of fiscal year ending June 30, 2010 in the amount of P2,543,964,112.68, the Court will now determine the amount of input VAT attributable thereto.

In support of its reported input

VAT

of P218,916,263.97, petitioner presented Schedule of Domestic Purchases of Goods35, Schedule of Domestic Purchases of Services36, Schedule of Capital Goods Purchased37, and the related VAT sales invoices, official receipts and other documents38 which were all examined

by the Court-

commissioned Independent CPA. Upon examination of the Independent CPA Report and petitioner's supporting documents, the Court finds that input taxes in the amount of P197,753,778.25 should be disallowed for not being properly substantiated by VAT invoices or receipts as prescribed under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8 and 4.113-1 of Revenue

Regulations

No.

16-05, as amended.

Below

is the breakdown of the disallowed input VAT of P197,753,778.25: Domestic Purchases of Services supported by original copies of VAT ORs where amount of Input VAT was not separately indicated39 Domestic Purchases of Services supported by original copies of VAT ORs where amounts per OR are greater than amounts per schedule and Input VAT is not separately indicated40 35 Exhibits "BBBBB 1-1" to "BBBBB 1-13". 36 Exhibits "CCCCC 1-1" to "CCCCC 1-76". 37 Exhibit "DDDDD 1-1" to "DDDDD 1-12". 38 Exhibits "EEEEE" and "FFFFF". 39 Annex 21 of Exhibit "LLLL". 40 Annex 24 of Exhibit "LLLL".

Input VAT

Exhibit

EEEEE 4-1 to EEEEE 4-

300, EEEEE 5-301 to P179 814 899.56

EEEEE 5-558

EEEEE 8-1 to EEEEE 8-

285 365.17 14

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

Domestic Purchases of Services supported by original copies of VAT ORs where amounts per OR differ from amounts per Schedule41 Domestic Purchases of Goods supported by original copies of Statement of Accounts42 Domestic Purchases of Goods supported by original copy of Service Invoice with "Not Eligible for Claim as Input

Tax" Stamp43

Domestic Purchases of Services supported by original copies of VAT ORs where date per OR differs from date Qer Schedule and Input VAT is not separately indicated44 Domestic Purchases of Services supported by original copy of VAT ORs where year of date cannot be validated and Input VAT is not separately indicated45 Domestic Purchases of Services supported by original copies of VAT ORs with incorrect supplier name and TIN and where Input VAT is not separately indicated46 Domestic Purchases of Services supported by original copies of VAT ORs with incorrect supplier name and where Input VAT is not separately indicated47 Domestic Purchases of Services supported by original copy of VAT OR which includes VAT-Exempt Sale48 Domestic Purchases of Services supported by original copies of VAT ORs with different company address and where Input VAT is not separately indicated49 Domestic Purchases of Services supported by original copy of VAT OR not in the name of the Company50 Domestic Purchases of Services supported by original copies of VAT ORs not in the name of the Company and where Input VAT is not separately indicated51 Domestic Purchases of Services supported by original copies of VAT ORs with different company TIN and where Input VAT is not separately indicated52 Domestic Purchases of Services supported by original copies of VAT ORs where Company's address and TIN are not indicated and Input VAT is not separately indicated 53 Domestic Purchases of Services supported by original copies of VAT ORs with different company address and TIN and where Input VAT is not separately indicated54 Domestic Purchases of Services supported by original copies of VAT ORs with different company name, address, and TIN and where Input VAT is not separately indicated55 Domestic Purchases of Services supported by original copies of VAT ORs not within the period of claim 56 41 Annex 26 of Exhibit "LLLL". 42 Annex 28 of Exhibit "LLLL". 43 Annex 29 of Exhibit "LLLL". 44 Annex 30 of Exhibit "LLLL". 45 Annex 31 of Exhibit "LLLL". 46 Annex 32 of Exhibit "LLLL". 47 Annex 33 of Exhibit "LLLL". 48 Annex 34 of Exhibit "LLLL". 49 Annex 36 of Exhibit "LLLL". 50 Annex 37 of Exhibit "LLLL". 51 Annex 38 of Exhibit "LLLL". 52 Annex 39 of Exhibit "LLLL". 53 Annex 40 of Exhibit "LLLL". 54 Annex 41 of Exhibit "LLLL". 55 Annex 43 of Exhibit "LLLL". 56 Annex 44 of Exhibit "LLLL".

Page 36 of 38

2 162.75

FFFFF 1-1 to FFFFF 1-5

FFFFF 3-1 to FFFFF 3-

50 539.99 212 138.24

FFFFF 4-1

76 944.03

FFFFF 5-1 to FFFFF 5-3

34.80

FFFFF 6-1

24 312.08

FFFFF 7-1 to FFFFF 7-9

396 203.81

FFFFF 8-1 to FFFFF 8-11

2 000.00

FFFFF 9- 1

FFFFF 11-1 to FFFFF 11-

168 782.32 6 3 351.24

FFFFF 12-1

FFFFF 13-1 to FFFFF 13-

8 249.30 5

FFFFF 14-1 to FFFFF 14-

1 556 075.88 2 42 053.57

FFFFF 15-1

FFFFF 16-1 to FFFFF 16-

172 065.71 2

FFFFF 18-1 to FFFFF 18-

15 760.88 3

FFFFF 19-1 to FFFFF 19-

3 281 585.70 33 (

PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR

Domestic Purchases of Services supported by original copies of Payment Advice only and where Input VAT is not separately indicated57 Domestic Purchases of Services supported by photocopies of VAT 0Rs58 Domestic Purchases of Services supported by original copies of Non-VAT ORs and where Input VAT is not separately indicated59 Domestic Purchases of Services supported by original copies of VAT ORs stamped with "Not Valid Source of Input Tax" and where Input VAT is not separately indicated60 Overstatement of Input VAT claimed on domestic purchases of Capital Goods with aggregate acquisition of cost of more than P1M in a calendar month61 Domestic Purchases of Goods with no VAT Invoices62 Domestic Purchases of Services with no VAT 0Rs63

TOTAL

Page 37 of 38

FFFFF 20-1 to FFFFF 20-

39 507.20 8 1 657 497.60

FFFFF 21-1

FFFFF 22-1 to FFFFF 22-

1 009 735.76 11

FFFFF 23-1 to FFFFF 23-

809 367.15 23

FFFFF 24-1 to FFFFF 24-

232 996.61 4 2 432 098.85 5 672 050.05 P197,753,778.25 Considering all of the aforesaid disallowances, out of the P218,916,263.97 input VAT reported by petitioner for the four (4) quarters of fiscal year ending June 30, 2010, only the amount of P21,162,485. 72 represents petitioner's valid input VAT, computed as follows:

Input VAT

p 218 916,263.97

Less: Disallowances

197 753/778.25

Valid Input VAT

p 21,162,485.72 At this point the Court takes into consideration the output taxes declared by petitioner in its Quarterly VAT Returns for fiscal year ending June 30, 2010 and compare the same with the foregoing substantiated input VAT, to wit:

Output VAT

Less: Valid Input

VAT

Output VAT Still

Due

57 Annex 45 of Exhibit "LLLL". 58 Annex 46 of Exhibit "LLLL". 59 Annex 47 of Exhibit "LLLL". 60 Annex 48 of Exhibit "LLLL". 61 Annex 49 of Exhibit "LLLL". 62 Annex 50 of Exhibit "LLLL". 63 Annex 51 of Exhibit "LLLL". p 119,369,965.37 21,162,485.72 P98,207,479.65 c . '

I

' PROCTER & GAMBLE ASIA, PTE. LTD. vs. CIR As shown above, petitioner's output tax liability in the amount of P119,369,965.37 as reflected in its Quarterly VAT Returns for the four ( 4) quarters of fiscal year ending June 30, 2010 is a lot higher than the valid input VAT of P21,162,485. 72.

Therefore, there is no excess input VAT which may be the proper subject of a claim for refund under Section 112(A) of the NIRC of 1997, as amended.

WHEREFORE, premises considered, the instant Petition for Review is hereby denied for lack of merit.

WE CONCUR:

Presiding Justice

CU.U N~ M~~-G~ CIELITO N. MINDARO-GRULLA

Associate Justice

' ER~P.UY Assoc1ate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

Presiding Justice

Chairperson, 1st Division